1. 金融機構整併現況及交易 協合國際法律事務所 金文悅 2008/10

2. 金融市場現況 • Capital Market • Insurance Industry • Banking Industry 2

3. Capital Markets • Trading volume: 2nd in Asia (2004); 15th in Asia (2005) • Market cap: No. 1 in emerging market; 2nd in Asia (2004); No. 21 in Asia (11/2006)

4. Insurance Industry • Size: 4th largest non-life market in Asia based on premiums • P&C penetration at 1.0% lower than other matureAsian markets (Japan: 1.5% ; South Korea: 3.0%) • Growth: CAGR of 4.4% from 2006-2016 (Swiss Re) • Market share: Top 5 insurers accounted for 55% of the market as of 2006

5. Relatively unsophisticated market, as a result of historical regulatory restrictions • Taiwanese market is a mix of a mature market in life but still under-penetrated in non-life.

6. Penetration rate of 14.6% • P&C: 1.0% • Life: 13.6% • Total market (2006 GWP): NT$1 677bn • P&C: NT$114bn • Life: NT$1 563bn • CAGR (compound annual growth rate) 2002 – 2006 • P&C: 3.0% • Life: 15.3% • Estimated CAGR 2006 – 2016 (Swiss Re) • P&C: 4.4% • Life: 6.6%

7. FSC Reform: • Risk-Based Capital System • Relax overseas investment • Adopt negative listing

8. Banking Industry As of June 30, 2007: • 47 domestic banks (including 74 foreign banks); 31 savings banks and 278 farmers’ and fishermen’s associations. • 14 Faces with 14 banks, 14 securities firms, 7 insurance companies • Market share: Top 5 accounted for 38%; top 10 accounted for 63%; 26 banks less than 2%; The Bank of Taiwan (9.85%); proposed Taiwan FHC (18% in lending and deposit)

9. Capital strength

10. BIS: 10.11 (Dec. 2006) • BIS: 10.62 (June 2007)

11. Assets and net worth * 2007: The total assets reached US$850 billion.

12. Asset Quality • NPL: 11.76﹪ in 4/2002; 2.87％ in 7/2005; 2.13% in 2006; 2.32% in 6/ 2007; coverage ratio: 58.53% in 2006; 55.14% in 6/2007

13. 12 1.2 10 1.0 10.30 8 0.8 6 0.61 6.04 0.6 0.47 4 0.4 3.61 3.50 0.26 2 0.21 0.2 0 0.0 -2 -0.2 -4 -0.4 -0.47 -6 -0.6 -7.35 -8 -0.8 Profitability ROA, ROE in recent 5 years ROE ROA ROA : from -0.47% in 2002; 0.61% in 2004; 0.17% in 7/2007 ROE : from -7.35% in 2002; 10.3% in 2004; 2.76% in 7/2007

14. Profitability • 7/2007 ROA: 0.17% (international average > 1%) • 7/2007 ROE: 2.76% (international average: 15~20%） • 2004 Revenue: 78% from loan (international average: 40%)

15. Comparison with Other Banks ROA Dec 31, 2004 LT Target Near Term Target

16. As of June 2007 • Cathay Bank: 0.35% • Taishin Bank: 0.36% • Chinatrust: 0.83% • Mega Bank: 0.35% • Taipei Fubon: 0.35%

17. ROE Dec 31, 2004

18. As of June 2007: • Cathay Bank: 5.6% • Taishin Bank: 7% • Chinatrust: 17.16% • Mega Bank: 4.18% • Taipei Fubon: 5.1%

19. Asset Dec 31, 2004

20. Taiwan FHC • Asset: US$159 billion (No.89 worldwide; 18 in Asia; exceeding top 3 banks in Singapore) • Branch: 308 • Overseas operation:16 • Market share: 18% in both lending and deposit market

21. Banking Consolidation 21

22. Financial Reforms in 2002 • July 2002: two-year Financial Reform Plan • focused on NPLs • increase the competitiveness of financial institutions • establish an integrated financial supervisory body to supervise financial institutions

23. Single Financial Regulator • FSC was established on July 1, 2004 • Single financial regulator to supervise the securities, banking and insurance industries

24. Regulators Prior to the Reform • Ministry of Finance (MOF): banking, securities & futures, insurance, taxation, fiscal policy, budget, management of government owned shares • Central Bank of China in Taiwan (CBC): monetary policy, FX policy, inspection of banks

25. After the Reform • MOF taxation, fiscal policy, budget, management of government owned shares • CBC monetary and FX policy and implementation • FSC (financial regulator) supervision of the banking, securities & futures and insurance industries and related capital markets activities; inspection of all financial institutions

26. FSC Major Tasks • Encourage consolidation of the Banking Sector • Strengthen corporate governance • Relax restrictions on financial business activities • Internationalize capital market practices • Strengthen enforcement against securities violations

27. Banking Consolidation in 2004

28. Reform in M&A Laws and Regulations From 2001 to 2002: • Financial Institution Merger Law (FSC) • Financial Holding Company Law (FSC) • 14 Faces established • Enterprise M&A Law (MOEA)

29. In October 2004, President Chen announced the four objectives regarding consolidation of the banking sector • By the end of 2005: • At least three banks’ total assets will exceed 10% market share • government owned banks reduced from 12 to 6 • By the end of 2006: • Faces reduced from 14 to 7 • at least one bank run by a foreign financial institution

30. Major Transactions From 2002 to 2005 • Taishin Bank merged Da An Bank • Fubon share merged Taipei Bank • Cathay Bank merged United World Chinese Bank • Chiao Tung Bank merged ICBC • Chinatrust Bank merged Grand Commercial Bank

31. From 2005 to 2007 • SCB tender offered Hsin Chu Bank • Long Reach acquired 51% of Entie Bank • Carlyle acquired 25% of Ta Chong Bank • MS' minority stake in Chinatrust and E-Sun

32. Acquisition via RTC • Tai Tong Business Bank (Chinatrust) • Hwa Lian Business Bank (ABN AMRO) • CUTIC (Cathay) • BOWA (DBS) • Chinese Bank (HSBC) • Asia Trust (SCB) – 10/2008

33. FSC’s Principal Regulatory Incentives to Facilitate Consolidation of the Banking Sector

34. FSC Regulatory Incentives During 2005: • Capital allocation • Investment by FHC (allow 5% investment by FHC, subject to implementation of the M&A plan approved by the FSC) • Amended the tender offer rules • 100% Foreign FHC or FHC equivalent entity to make investment in a domestic bank • Amendment to the Financial Institution Merger Law and the FHC Law

35. Capital Allocation Prior to the reform: • After 100% share swap between a financial institution and FHC, cash remains at subsidiary • Dividend can only be distributed once a year • For banks, no capital reduction is allowed for BIS below 12%

36. After the reform: • 10% BIS plus 6% tier one capital • Potential excess cash: NT$144 billion (14 FHC)

37. Investments by FHC Financial Holdco Law • FHC may invest in FI and non-FI, subject to the approval of FSC • Max. of 5% paid-in capital for investment in a non-FI; no participation in the management • Banks under FHC not allowed to make long-term investments

38. Investments by FHC • Old guidelines: prior approval for any investment; investment must exceed 25% of the target company • 2005 guidelines: Min. of 5% investment completed within one year, with the plan of consolidation within 3 years • 2007 policy change (?)

39. Major Investment Review Guidelines • Unless otherwise approved, DLR below 125% • “Fit and Proper’’ test for investment of more than 10% in an FHC, or 15% in a bank • No cumulative losses

40. Tender Offer Rules • Mandatory tender offer: 20% within 50 days • No squeeze-out rule (SCB integration) • 70% acquisition of shares triggers delisting (?) • No prior approval from FSC required • Prior approval from FSC required for regulated industries • Right to call shareholders’ meeting to re-elect directors for any purchase of 51% or more

41. Amendments to the Tender Offer Rules • Relax acquisition consideration (foreign stocks and bonds allowed) • Strengthen disclosure requirements • Balance commercial risk between offeror and offeree • FSC’s neutral policy toward hostile takeover

42. Amendments to Financial Institution Merger Law • Tax incentives • Goodwill amortized in 5 - 15 years

43. Amendments to Financial Holdco Law • Cash can be used as consideration in a share swap (FSC letter) • Bank under FHC can make long-term investments (Amendments pending at the Executive Yuan)

44. Foreign Investment in Banks • Banking Law: Max. of 25% investment in a bank by same person or related persons • Exception to 100% investment - FHC - trouble banks - government owned banks

45. Relaxed Foreign Investment in Banks • Relax definition of foreign FHC • Cross sectors • SPV of a FHC

46. How to kick-off an M&A deal?

47. Major Milestones • Identify target (Target analysis) • Cooking the deal • Signing of NDA • Signing of MOU/ indicative terms (binding or non-binding) • Due diligence • Negotiation of SPA and SHA • Arrangement of financing • Signing • Closing

48. Target Analysis • Taiwan Market • Business profile of Target • Rationale • Preliminary Valuation • Proposed offer

49. P&C Insurance Company – A cross border acquisition

50. Pros • Immediate market presence with critical mass and 100% ownership and control • Stable and profitable business with a long history in the market • Potential for growth in earnings mainly coming from a less conservative reinsurance program • Potential for a non-life bancassurance distribution